18 October 2019

POLITICO: Why an EU trade deal may not deliver for post-Brexit Britain

even if the U.K. is able to negotiate a free-trade deal — and time is tight given the transition period ends in December 2020 — this would not be a panacea for the Brexit issues U.K. and EU exporters would face, particularly small ones.

The main advantage of a Canada-style deal, from the British government’s perspective, is that it would allow the U.K. to leave the EU customs union and set its own tariff rates.

This will create a whole new set of costs and paperwork for companies wishing to trade under such an agreement. These costs are so high that in many cases, companies prefer not to use the deal and just pay the higher tariffs.

New data released by the Commission on Monday shows just how bad the problem can be. EU companies trading with Switzerland, an economy highly integrated with the EU’s, and which enjoys tariff-free trade under a deal but is not in a customs union with the bloc, only used that trade deal for 77 percent of their exports.

That means exporters accounting for a quarter of EU shipments in value to Switzerland preferred to pay WTO tariffs than filling out the additional paperwork to use the deal.

In contrast, 90 percent of EU exports to Turkey, which is in an (incomplete) customs union with the EU, made use of that deal to trade tariff-free.

It gets worse: Only 37 percent of EU exports to Canada, the professed model for Brexiteers, were exported under the CETA trade deal. That means that more than 60 percent of EU exports to Canada are paying higher WTO tariffs even though the companies could ship their goods at lower rates or even tariff-free.

EU business lobbies such as the German Chamber of Commerce have cited excessive paperwork and “bureaucracy” as a reason why companies shy away from using trade deals. Firms need to prove that each of their products comply with “rules of origin” —requirements on how much Canadian or EU content has to be in each type of good to qualify for for tariff reductions — while in a customs union, tariffs are slashed by default. [...]

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